bout 60-70% of Chinese methanol plants use coal

as a feedstock, 20% use natural gas and the remaining use coke oven gas. Despite the dominance of coal, logistics and environmental concerns have led the Chinese to seek alternative routes for its methanol economy.

PARADOX IN COAL INVESTMENTS

Beijing is reducing irrational investments in coal-to-gas or coal-to-liquid project, including coal-to-methanol plants which produce synthetic natural gas to feed methanol production.

The central government have directed provincial authorities to ban coal-to-gas projects that produce 2 billion cu m/year and coal-to-oil schemes that produce less than 1 million mt/year from July this year, local media reports said.

While this has brought about some cooling on investments into the once red-hot coal industries, it has not brought about complete relief.

There are still counties which are building large-scale coal projects, regardless of logistical or environmental barriers.

Some provincial governments even reduced unofficial taxes to bolster the faltering coal industries. For example, Shaanxi authorities stopped levying five taxes and cancelled 11 illegal fees to accelerate the development of its coal industry.

Hence, while overheated developments in the coal indus-tries could be arrested, the coal industry in China will likely continue developing. The huge reserves of coal in China drives this final point

home. Inundated with large proven reserves, especially in the inner states, China's coal industry is a large-scale production base which supports millions of workers from the mines to consumers of petrochemicals.

Coal production levels in China will remain strong -- especially in the coal belts that run through Inner Mongolia, Shaanxi, and other regions -- for at least in next 5-10 years.

Figures from the National Bureau of Statistics show this: Total raw coal production reached 1.85 billion tons in the first six months of 2014, down 1.8% compared with the same period of last year.

The Chinese authorities will endeavour to reduce China's reliance on coal and reduce carbon emissions, but coal will remain entrenched in the Chinese economy for some time to come. Hence, it is likely that coal will remain the main source of feedstock for methanol production in the near future.

THE SHALE GAS CHALLENGE

A major challenge to coal-based methanol production comes from shale gas in the US.

More methanol producers are shifting their plant operations to the US to take advantage of cheap and abundant wet shale gas.

Canadian supplier Methanex is relocating two plants from Cabo Negro, Chile, to Geismar, Louisiana. There are also talks in the US to restart idled domestic methanol plants, following LyondellBasell, which restarted a 780,000 mt/year plant at Channelview, Texas.

Other producers such as OCI NV, Valero and Celanese have plans to build new plants.

But Chinese companies are catching on fast, with two Chinese groups putting forward plans to move methanol operations to shale gas-rich areas like Texas.

China’s Connell Group and Sino Life Insurance have plans to build a 7.2 million mt/year methanol plant at Shoal Point, Texas City. The plans will include a new deepwater port to service a fleet of 1,200-foot-long post-Panamax tankers that will deliver the methanol cargoes through the Gulf of Mexico to China. They have been designed to travel through the Panama Canal, which will be expanded by 2016.

The new locks at the Panama Canal will be able to accommodate 1,200-foot-long post-Panamax ships as opposed to 965-foot-long Panamax vessels.

Also, China's Shandong Yuhuang Chemical plans to start up a Baton Rouge-based methanol plant in Louisiana by 2018, with a production capacity of 1.825 million mt/year.

Asian traders and producers generally agree that China will be able to absorb the extraneous methanol due to increased demand from its still-growing economy, such as its methanol-to-olefins, as well as traditional downstream demand from formaldehyde, acetic acid and methyl tertiary butyl ether.

Other market participants think these producers will be able to sell their products and the downstream derivatives into the US domestic market.

Catalyst Autumn/Winter 2014 7

Challenges To Coal's Dominance In Chinese Methanol Industry

6 Autumn/Winter 2014 Catalyst

The rise of methanol as a petrochemical feedstock has revived China’s methanol industry. Paul Lim looks into recent developments in the field and how China is staying ahead of competition.

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SHIPPING BOTTLENECK

The waterways factor heavily on these investment decisions. Some of these new methanol plants in the US sit right by the Mississippi River to facilitate loading and offloading of products and feedstock.

The widening of the Panama Canal also means that bigger carriers can navigate its waters. This can result in lower freight costs per metric tonne for cargoes, which could further dampen CFR prices.

In Egypt, a 75 km-long canal which will run parallel to the main Suez Canal, will also allow more options for carriers.

This is supported by a new trend among producers, who have increasingly started to build their own liquefied natural gas (LNG) carriers, or buy existing ones, to ensure they have a fleet ready to ship methanol cargoes.

However, shipping methanol from US to China has its own niggling worries.

Freight and logistics costs can be high, as bunker fuel prices depend on crude price movements. Administrative delays or cross-straits political tensions can jack up costs further.

FRACKING FAILURE IN CHINA

China has made little progress in unlocking its own reserves of tight gas, with large amounts of shale gas still stranded in the western mountains. Tight gas is typically defined as natural gas produced from reservoir rocks that required massive hydraulic fracturing, or fracking, to be economically viable.

It slashed its 2020 shale gas production target of 60-80 billion cu m by half to 30 billion cu m in August, as faltering exploration attempts

failed to unlock tight gas.

Fracking in China is still in its infancy stage, with inaccessible locations increasing the production costs per gas well.

It is estimated that shale gas production costs from wells in China could be about four times more expensive than costs in the US.

As of now, natural gas accounts for only 4% of China’s total energy consumption. Yet, it holds about 155.38 trillion cu ft of proven natural gas reserves, mostly in the western and central parts of the country.

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CALCIUM CARBIDE FURNACE GAS

ALTERNATIVE feedstocks for metha-nol production in China have become visible in past months, but the domi-nance of coal is hampering their progress as viable substitutes.

In early July 2014, a methanol plant using calcium carbide furnace gas as a feedstock started up in Sichuan's Mao-xian county.

However, it may suffer from low econo-mies of scale as it is the only plant in China to use calcium carbide furnace gas. With a nameplate capacity of just 80,000/mt, this is only a fraction of typical coal-based methanol plants in China, whose production capacities range between 350,000 and 1 million mt/year.

This makes it likely that only compa-nies with backward-inte-grated investments in calcium carbide production would be able to run such plants at a profit. Purchasing the gas off the market, or re-engineer-ing a plant to accept it as feedstock,

would likely prove uneconomical.

There is also an additional step of purifying calcium carbide furnace gas before it can be used as synthetic natural gas, thus increasing the costs further. Scientists in the US and France announced in July that they had made breakthroughs in using carbon dioxide as a potential feedstock to produce methanol by using new catalytic systems. The process uses copper and ceria or titanium. However, the process is still in experimental and research stages. It is not likely to gain industrial wide applications anytime soon.

-- Paul Lim, paul.lim@petchemstandard.com

-- Edited by Clement Choo, clement.choo@petchemstandard.com